Documents at your disposal

By Carl Peckinpaugh

Jan 20, 2002

The recent Enron stock meltdown has been nothing but bad news. Many institutional and private investors lost vast sums of money, thousands of Enron employees lost their jobs and many other companies will see their finances subjected to increased scrutiny and skepticism as a result of this debacle. Everyone is asking, "How did this happen?"

Unfortunately, if the early reports are true, we may never know the full story because many of the key records have been destroyed. Virtually every story of the Enron failure has included allegations of document shredding, file destruction, and similar unusual and potentially nefarious conduct. As a result of all this, many companies are re-examining the contents and enforcement of their own document retention and destruction policies.

Under the normal rules of evidence in most judicial proceedings, a document or record may be used as evidence of an event, condition or opinion if the record was made at or near the time of the event by a person with knowledge of the facts and if such records are regularly kept in the ordinary course of the company's business. Under this rule, a company can use business records to establish facts.

However, for the rule to apply, there must be evidence of a clear and consistently followed document retention policy. In general, the policy should:

* Set clear guidelines for different types of records, including paper documents, electronic files and e-mail messages.

* Distinguish between official business records and personal files where appropriate.

* Clearly establish the duration and methods for storing records.

* Clearly and effectively address the ultimate destruction of those records.

The document retention policy also must be objectively reasonable and cannot be used to unfairly disadvantage others.

Furthermore, even when a company's document retention policy is otherwise reasonable, the company is required to ensure that the policy does not result in the destruction of potential evidence in any particular case. If a company knows or should know that documents might "become material at some point in the future, then such documents should [be] preserved. Thus, a corporation cannot blindly destroy documents and expect to be shielded by a seemingly innocuous document retention policy," as a New York court found in 1992 in Turner v. Hudson Transit Lines Inc.

A company's failure to establish and follow a reasonable document retention policy can deprive it of the ability to use its business records to prove facts in dispute. Even worse, a company's failure to properly maintain documents can result in the drawing of negative inferences about the company's behavior. Given the recent headlines, all companies are on notice of the need to reaffirm the reasonableness and effectiveness of their own document retention policies. The smart ones will pay heed.

Peckinpaugh is corporate counsel for DynCorp in Reston, Va. This column represents his personal views.